Coal India (CIL) on Tuesday decided to revise the contentious penalty clause in the fuel supply agreements (FSA) to be signed with power sector companies, marginally hiking the penalty. This penalty, however, would be still lower than the level discussed during a meeting convened by the Prime Minister’s Office.
The state-run company has decided to go in for a graded penalty structure where the compensation amount would vary from 1.5% to 40% of the value of coal that is in short supply over the agreed quantity of fuel to be supplied annually under the terms of the FSA. It will, however, stick to its board?s earlier decision to supply at least 80% of the required fuel to power firms.
As per the compensation formula approved by the CIL board, the company will pay a penalty of 1.5% for coal supply levels between 80% and 65% to power firms. Supplies between 65% and 60% will attract a penalty of 5%, 60% and 55% would attract 10% penalty; 55-50% will have 20% penalty and below 50% supplies will attract 40% penalty.
The new rates are higher than 0.01% penalty approved by CIL board earlier for entering into FSA with power projects getting commissioned upto December 31, 2011. However, the amount of compensation likely to be paid by CIL would remain on the lower side as expected levels of coal shortfall would only attract the lower band of the penalty.
CIL used to pay 10% penalty under FSA it inked up to March 31, 2009. At a meeting convened by the PMO last month, it was decided that CIL would pay a penalty of 20% for supply levels up to 5% below the agreed level (65%) and 40% if the supply levels falls below the 5% mark.
The board also decided that CIL would supply at least 80% of the required fuel to power firms and this would be through a mix of indigenous and imported coal. The cost of imported coal would be recovered from customers and a pooled pricing mechanism could be evolved later.
CIL chairman and managing director S Narsing Rao said that the board has broadly agreed to pooling of coal price, but the issue would be further discussed at the company’s board meeting on August 13. ?All stakeholders like power producers and state electricity board should be on board if pooling of prices has to be implemented. We have no objection to implementing price pooling if it is acceptable to all stakeholders,? he said.
Initially, CIL would import coal through MMTC and STC. Later, the company would also start importing coal by itself, Rao said. The changes in the penalty structure are aimed at pacifying coal consumers, such as NTPC, which had cried foul when CIL proposed a lot lower level of penalty (0.01%) and put a moratorium on paying even this small penalty for first three years of the FSA, citing shortages in coal production. So far, CIL has signed 27 FSAs of a total clientele of 49 power producers. The PMO and presidential order had earlier directed Coal India to sign fuel supply pacts with utilities promising to meet a minimum 80% of annual supply commitments or else face a penalty.
